Digital Currency ：10 Questions
about China’s DCEP - Part 1
Q1. What is DCEP and how is it different from the existing Chinese yuan?
Answer: Simply put, DCEP is the Chinese yuan banknotes and coins we use every day digitalized.
Q2. Are DCEP and Bitcoin similar things?
Answer: No, they are entirely different things with two distinctive differences:
First, DCEP is 100% state-backed by the government’s reserve fund. In other words, it is central bank’s debts guaranteed by PBOC. So, it is a national sovereign currency. On the other hand, Bitcoin is not backed by any central banks. That’s why there is the huge price fluctuation in its value.
In terms of design, DCEP adopts a two-layered operating system – the PBOC first converts DCEP to banks or other financial institutions, and then these institutions further distribute the digital currency to the public. Bitcoin is issued in a decentralized way called mining, which does not involve any central banks or commercial banks, and it is distributed to the public directly.
Q3. Is DCEP just another stablecoin like Libra and USDT?
Answer: No, DCEP is backed and issued by the Chinese government, while Libra and USDT are issued by private institutions and collateralized by the US dollar or other fiat currencies.
From a legal perspective, DCEP is a legal tender, which means when we use DCEP for payment, merchants cannot refuse. On the contrary, Libra and USDT are not legal tender and merchants have every right to say no if we want to pay with them.
Q4. Is blockchain technology applied to DCEP?
Answer: It is hard for PBOC to fully apply blockchain technology to DCEP as the existing technology can’t handle the high concurrency that will take place.
DCEP has borrowed some of the concepts in blockchain technology, as seen from its latest disclosed patent, DCEP is integrated with asymmetric cryptography, unspent transaction output (UTXO), and smart contract technologies. However, consensus mechanism, which is the key of public blockchains, is unlikely to be adopted.
Q5. What is the difference between DCEP and the balances in Alipay / WeChat Pay?
Answer: Alipay and WeChat Pay are the most popular mobile payment apps in China. However, DCEP is more than just another virtual wallet balance.
In terms of money supply, DCEP is designed to replace the current Reserve Money (M0), which is cash, while the funds stored in Alipay and WeChat Pay belong to M2, the deposits of non-depository financial institutions. This is to say, DCEP is the new cash.
Besides, the legal status and security level of the central bank digital currency is much higher than the Alipay and WeChat Pay balances. Similar to commercial banks, when these third-party payment companies go bankrupt one day, people have to face the risks of losing their funds. But DCEP holders will never have to deal with this problem.
By: Mr. Lin Weidong ( Lecturer )